C.98-04-004 et al. ALJ/MAB/MOD-POD/abw

COM/CXW/esp / DRAFT / H-5c
12/21/00

Decision ON APPEAL OF COMMISSIONER WOOD

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

The Utility Consumers’ Action Network,
Complainant,
vs.
Pacific Bell (U 1001 C),
Defendant. / Case 98-04-004
(Filed April 6, 1998)
And Related Matters. / Case 98-06-003
(Filed June 1, 1998)
Case 98-06-027
(Filed June 8, 1998)
Case 98-06-049
(Filed June 24, 1998)
Investigation 90-02-047
(Filed February 23, 1990)

FINAL OPINION ON PACIFIC BELL’S

MARKETING PRACTICES AND STRATEGIES

(Appearances are listed in Attachment B.)

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C.98-04-004 et al. COM/CXW/espDRAFT

TABLE OF CONTENTS

TitlePage

1.Summary......

2.Procedural History......

2.1.Requests To Reopen the Record......

2.1.1.Wallace Roberts......

2.1.2.TIU......

2.1.3.Resolution of Requests......

2.2.Changes from the Presiding Officer’s Modified Decision......

2.2.1.Business and Professions Code......

3.Disputed Material Facts......

4.Witnesses Presented......

4.1.UCAN......

4.2.Greenlining......

4.3.ORA......

4.4.TIU......

4.5.Pacific Bell......

4.6.Wallace Roberts......

5.Statutory and Decisional Standards Applicable to Pacific Bell’s Duty to Inform Customers

5.1.General Standard......

5.2.Sufficient Information To Make Informed Choices......

5.3.Tariff Rule 12 and Information Regarding “Packages”......

5.3.1.Basis of Tariff Rule 12......

5.3.2.Application of Tariff Rule 12 to Service “Packages”......

5.4.Information Regarding Caller ID Blocking......

6.Marketing Specific Services......

6.1.Caller ID and Blocking Service......

6.1.1.Pacific Bell’s Contract With BRI......

6.2.Anonymous Call Rejection......

6.3.Inside Wire Maintenance Plans......

6.3.1.Disclosure of Different Maintenance Plans......

6.3.2.Landlord’s Responsibility......

6.3.3.Disclosure of Competing Maintenance Providers......

6.4.The Basics and The Essentials Packages of Optional Services......

6.4.1.Background......

6.4.2.State Law on Basic Service......

6.4.3.The Basics Saver Pack and Commission Precedent......

6.5.The Basics Plus Saver Pack......

7.Marketing Programs and Tactics......

7.1.“Offer on Every Call”......

7.2.Sequential Offerings......

7.3.Incentives and Sales Quotas......

7.4.Providing Customer Information......

8.Marketing to Customer Groups......

8.1.Marketing Targeted at Minorities or Recent Immigrants......

8.2.Marketing to ULTS Customers......

9.Remedies......

9.1.Caller ID Blocking......

9.2.Inside Wire, Packages Offered Sequentially, The Basics, and ULTS......

9.3.Sales Incentives to Service Representatives......

9.4.Fine......

ATTACHMENT A

ATTACHMENT B

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C.98-04-004 et al. COM/CXW/espDRAFT

FINAL OPINION

1.Summary

In this decision we address a number of Pacific Bell’s techniques for marketing its optional services to residential customers. We find that some of these techniques violate statutory and decisional standards and that some do not. We find that Pacific Bell failed to inform customers adequately regarding (1) the number blocking options to prevent a caller’s number from being displayed on a Caller ID device, and (2) the two inside wire maintenance plans it offers. We also find that Pacific Bell’s marketing policy of sequentially offering packages of services in descending order of price fails to sufficiently inform customers because they are not told of the less expensive package unless they refuse the more expensive option. We find that Pacific Bell’s practice of requiring its service representatives to try to make a sale every time a customer calls – its “Offer On Every Call” program—unacceptably interferes with Pacific Bell’s duty to provide customer service of reasonable quality. We determine that unlimited potential sales commissions for service representatives also interferes with providing quality customer service, and is inconsistent with the incentive compensation guidelines we have previously established for Pacific Bell. We hold that Pacific Bell improperly used the Universal Lifeline Telephone Service subsidy program as a link to market other optional services, and that its marketing of a package of optional services under the name “The Basics” is misleading because it inaccurately suggests that the package offered constitutes basic telephone service.

We find in favor of Pacific Bell on several issues raised by complainants. First, no law or decision precludes customers who do not wish to receive calls from lines with numbers blocked from Caller ID from rejecting such calls and purchasing services from Pacific Bell to prevent such calls from being presented to their telephone. This service is called Anonymous Call Rejection.

Second, we find that Pacific Bell’s marketing practices failed to meet statutory and decisional standards for all customers. Hence, we do not need to reach the question of marketing practices that are misleading to only certain customer groups but not others.

Third, although Pacific Bell is subject to stringent federal and state regulations regarding the privacy of customers’ information, those standards do not prevent Pacific Bell from providing customer information, subject to appropriate security measures, to its agents and affiliates for Pacific Bell marketing purposes.

Remedying these violations and preventing their recurrence will require a major effort by Pacific Bell. Unfortunately, the record does not contain detailed remedial proposals, so we direct the parties to prepare such proposals for our further consideration. These proposals should address customer notification and refunds, including customer outreach plans to ensure that Pacific Bell reaches as many customers as possible. We direct Pacific Bell to make all necessary refunds directly to customers and to provide sufficient funds for the customer outreach effort.

Many of the marketing abuses complained of in this proceeding closely resemble the marketing tactics the Commission found violated statutes and regulations in Pacific Bell’s 1986 marketing abuse proceeding. In light of the recidivist nature of Pacific Bell’s actions, we also impose a fine of $43.8 million.

2.Procedural History

This proceeding consolidates complaints against Pacific Bell by the Utility Consumers’ Action Network (UCAN), the Greenlining Institute and the Latino Issues Forum (Greenlining), and the Telecommunications Union, California Local 103, International Federation of Professional and Technical Engineers, AFL-CIO (TIU). The Office of Ratepayer Advocates (ORA) intervened in the consolidated proceeding and presented its own evidence on a number of key issues. The complaints allege that Pacific Bell was

  • persuading customers to switch from complete Caller ID blocking to selective blocking by providing incomplete and misleading information about the service and the level of privacy protection it provided,
  • marketing packages of services under the name “The Basics” and the “Basics Plus” which suggest that the services are basic telephone service rather than a package of optional features,
  • offering the most expensive inside wire repair service first and only telling customers of a lower-priced option if they reject the first,
  • unlawfully using and disclosing Customer Proprietary Network Information, and
  • employing sales programs and practices which operated to the detriment of customer service and quality customer information.[1]

On July 7, 1998, the Assigned Commissioner and Administrative Law Judge (ALJ) issued a ruling determining the scope of the proceeding and designating the ALJ as the presiding officer.

To address complainants’ allegations in an efficient manner, the Assigned Commissioner and ALJ directed the parties to participate in a collaborative process to discover and potentially agree upon the basic facts that underlie these complaints. To facilitate this effort, Pacific Bell agreed to produce testimony and produce witnesses for deposition on a list of subjects identified by complainants, rather than the usual course of complainants producing the first round of testimony. On August 21, 1998, Pacific Bell produced testimony by four witnesses. The parties continued discovery and negotiations regarding a potential factual stipulation, and on October 30, 1998, the parties filed a statement of undisputed facts.

ORA filed its statement of disputed facts, the declaration of its witness, Kelly Boyd, and its report on Pacific Bell’s marketing practices. On November23,1998, Greenlining and UCAN submitted their direct testimony. Pacific Bell submitted rebuttal testimony on December 15, 1998, with surrebuttal testimony following on December 23, 1998. Cross-examination of witnesses occurred on January 21 through 27, 1999. Late-filed exhibits 90-102 were added to the evidentiary record by ALJ ruling on March 11, 1999. The statutory deadline to conclude the proceeding was extended by Decision (D.)9904-005. The proceeding was submitted with the filing of briefs on March26, 1999.

The Presiding Officer mailed her Presiding Officer’s Decision (POD) on December 22, 1999. Pacific Bell, Greenlining, and TIU submitted timely appeals of the POD. On January 21, 2000, The Utility Reform Network (TURN) and the Communications Workers of America filed motions to intervene and appeals of the POD. The Presiding Officer granted both motions by ruling on February1,2000.

On February 7, 2000, ORA submitted a request for official notice of the Veto Message of Governor Pete Wilson to Assembly Bill (AB) 1161. ORA’s request is granted.

The Commission, en banc, held oral argument on February 23, 2000. The Presiding Officer issued a Modified POD on July 13, 2000. The Modified POD reflected only minor clarifications to the POD.

2.1.Requests To Reopen the Record

2.1.1.Wallace Roberts

On July 22, 1999, Intervenor Wallace Roberts submitted a letter, copied to all parties, in which he alleged that Pacific Bell had transferred his local service from another provider back to Pacific Bell without his authorization. He submitted another letter on July 24, 1999, where he suggested that the unauthorized transfer was in retribution for his request that Pacific Bell not contact him about switching back. Roberts requested that his allegations be investigated as part of this case.

On July 30, 1999, Pacific Bell provided a letter in which it explained that Roberts’ unauthorized transfer had been caused by clerical error and that steps had been taken to ensure that no further such errors occur. Pacific Bell opposed reopening the record.

2.1.2.TIU

On September 9, 1999, TIU filed its Petition to Set Aside Submission and Reopen the Proceeding for the Taking of Additional Evidence. TIU stated that Pacific Bell had unilaterally canceled agreements with TIU that eliminated the requirement to offer certain services on every call and to limit supervisory monitoring. The agreements are included in the evidentiary record as Exhibits 44 and 45.

On October 1, 1999, Pacific Bell filed its response in which it stated that the petition lacked merit because the record shows that the agreement could be canceled at any time, and any questions regarding the legality of the cancellation would be better addressed in the collective bargaining process.

2.1.3.Resolution of Requests

Rule 84 of the Rules of Practice and Procedure allows a party to file a Petition to Set Aside Submission. Such a petition, however, must supply facts demonstrating a change in law or fact since submission which would justify re-opening the record. Here, Roberts alleges that Pacific Bell has violated the anti-slamming statute, § 2889.5.[2] This issue is unrelated to the facts and law currently at issue in this proceeding. Should Roberts wish to pursue this issue, he may do so through the Commission’s complaint process.

TIU claims that Pacific Bell’s cancellation of a particular agreement with TIU affects the facts in this case. Subsequent cancellation does not affect the fact that the agreements were in place during a portion of the time relevant to this proceeding. Should TIU wish to challenge Pacific Bell’s right to cancel the agreements, TIU may do so through the collective bargaining process or other appropriate means.

For the reasons stated above, the Roberts request and TIU’s petition are denied.

2.2.Changes from the Presiding Officer’s Modified Decision

This Decision differs from the Revised Presiding Officer’s Decision (mailed November 11, 2000) in the following ways:

  • It determines that Pacific Bell’s practice of requiring service representatives to promote optional services on every incoming call is unlawful because it violates applicable service and disclosure standards contained in § 451, § 2896, and Pacific Bell’s Tariff Rule 12. (See section 5.)
  • Like the Presiding Officer’s Decision, this Decision declines to adjudicate claims that Pacific Bell violated the California Unfair Competition Law (Business and Professions Code §17200 et seq. and § 17500 et seq.), and notes that remedies available under that law are cumulative and in addition to remedies that may be imposed under other laws. The discussion has been revised, however, to clarify that a court is the appropriate forum in which to adjudicate Unfair Competition Law claims and that nothing in this Decision is intended to preclude a court from imposing additional remedies under that law, based on the business practices at issue in this proceeding. (See section 2.2.1.)
  • The amount of the fine is not significantly changed, but the Decision clarifies how the fine amount was calculated and the criteria that were considered. (See section 9.4.)

The Findings of Fact and Conclusions of Law have been revised consistent with these substantive changes.

2.2.1.Business and Professions Code

On appeal of the POD, Greenlining contends that the decision should contain findings that Pacific Bell has violated Business and Professions Code §§ 17200 and 17500.

The California Unfair Competition Law, Business and Professions Code § 17200 et seq. and § 17500 et seq. (UCL) prohibits “any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” (Business and Professions Code § 17200.) The UCL “borrows” violations of other laws and treats them as unlawful business acts independently actionable under the UCL. Cel-Tech Communications v. LA Cellular (1999), 20 Cal.4th 163, 180; Quelimane Co., Inc. v. Stewart Title Guar. Co. (1998) 19 Cal. 4th 26. Practices may be “unfair” even if not proscribed by some other law. Cel-Tech, 20 Cal.4th at 180.

Courts may enjoin unfair or unlawful business practices and grant other relief “as may be necessary to restore to any person . . . any money or property . . . which may have been acquired by means of such unfair competition.” (Business and Professions Code § 17203; see also § 17535.)

A violation of the advertising provisions of the UCL (Business and Professions Code § 17500, which prohibits “deceptive, false, and misleading” advertising) constitutes a misdemeanor punishable by a civil penalty of up to $2,500 per violation and six months in jail. (Business and Professions Code §§ 17500,17534, 17536.)

All of the remedies for violations of the UCL are “cumulative to each other and to the remedies or penalties available under all other laws of this state.” (§§ 17205, 17534.5.) Thus, in a UCL action, a court may order remedies in addition to sanctions that have been or may be imposed under other laws and/or by other courts or agencies, based on the same conduct. (People v. Damon (1996) 51 Cal.App.4th 958, 969.)

The Commission’s regulatory authority stems from the California Constitution and the Public Utilities Code, and gives this Commission broad regulatory power over Pacific Bell. The Commission’s remedial powers are extensive. (See San Diego Gas & Elec. Co. v. Superior Court (Covalt)(1996) 13 Cal. 4th 893, 914-915; Wise v. PG&E (1999) 77 Cal.App.4th 287, 299; Public Utilities Code § 701.) This decision represents our disposition of the Public Utilities Code issues before us. We believe that the court is the appropriate forum in which to adjudicate the Unfair Competition Law claims. (See Business and Professions Code § 17204.) Nothing in our disposition of this case is intended to preclude a court from imposing additional remedies pursuant to the Unfair Competition Law. (See People v. Damon,supra; Business and Profession Code § 17205.)[3]

2.2.2 Customer Complaints

Complainants’ allegations are based, in large part, on Pacific Bell failing to inform customers of less-expensive or different options. Customers who later became aware of these options could reasonably be expected to contact Pacific Bell seeking an option about which they were not informed. The record reveals that Pacific Bell’s usual response was to transfer the customer to the other service option, and refund any disputed amount. Pacific Bell, however, did not track these service changes. In this way, Greenlining, TURN, and ORA allege that Pacific Bell can successfully evade a comprehensive understanding by the Commission of the effect on customers of Pacific Bell’s marketing abuses.

Because Pacific Bell did not keep records of actual customer complaints,[4] there is no way of knowing exactly how many customers have been affected by the marketing abuses found in today’s decision. Sufficient evidence of such abuse is present in the record, however, in the form of customer and service representative testimony, ORA’s monitoring of actual service representatives, and Pacific Bell’s admissions regarding its policies and procedures. (See Turn v. Pacific Bell, 49 CPUC 2d 299, 305 (D.93-05-062) (1993).)

3.Disputed Material Facts

Despite the volume of testimony, few disputed issues of material fact exist in this record. This is not surprising as Pacific Bell’s marketing and customer service efforts are large-scale public activities that are readily observable and thus difficult to call into dispute. Instead, the focus of the proceeding is the legal effect of Pacific Bell’s largely undisputed actions. The parties’ jointly filed statement of undisputed facts covers many, but not all, of the circumstances in this proceeding. Consequently, much of the prepared written testimony consists of legal and policy argument.

Rather than reciting a detailed summary of the evidence presented by each party, the following sections of this decision rely as much as possible on the agreed-upon statement of undisputed facts as well as facts which are not contested in the record. Thus, where factual assertions are made without attribution, these facts are considered undisputed. Where conflicting assertions are made, they are attributed to the sponsoring parties.

4.Witnesses Presented

4.1.UCAN

UCAN’s executive director, Michael Shames, testified regarding the consumer impact of Pacific Bell’s sales and marketing plans. UCAN witnesses Charles Carbone and Danial Saban testified about contacts with Pacific Bell’s customer service representatives. UCAN witnesses Patricia Greenan and JanetSpector provided their observations from their jobs as Pacific Bell employees. UCAN’s final witness was Beth Givens, founder and director of the Privacy Rights Clearinghouse.

4.2.Greenlining

Guillermo Rodriguez, Latino Issues Forum board member, testified on Latino customers’ reaction to Pacific Bell’s marketing. Michael Phillips, former banking executive and author of numerous books on finance, economics, business development, and marketing, analyzed Pacific Bell’s marketing and outreach programs with respect to optional products, such as Caller ID and Anonymous Call Rejection, and packages of enhanced services known as “The Basics,” “The Basics Plus,” and “The Essentials.” Roxanne Figueroa, PaulCorrea, and Jose Gutierrez testified on their respective phone service orders. Greenlining’s executive director, John Gamboa, testified that “high-pressure sales tactics exploit the fact that limited English speaking customers are eager to please and complain far less frequently than fluent English speakers.”